RIYADH, 19 April 2007 — Saudi Telecom Co. (STC), the largest Arab telecom company by market value, made its smallest quarterly profit in more than two years as competition eroded the former monopoly operator’s margins.
Saudi Telecom’s net profit fell 20.5 percent to SR2.72 billion ($725.6 million) in the three months to March 31, compared with SR3.42 billion a year earlier, the company said in a statement on the Saudi bourse website.
It was Saudi Telecom’s smallest quarterly profit since December 2004, the third straight decline quarterly in profit and the sharpest drop in at least four years.
Saudi Telecom lost its monopoly on mobile phone services when Etihad Etisalat (Mobily) started operations in 2005. The company is set to lose its fixed-line monopoly this year.
Mobily captured a 30 percent share of the mobile phone market within 18 months of launching in May 2005.
This has taken a toll on Saudi Telecom’s earnings. Operating revenues fell 2.3 percent to 8.32 billion riyals, leading to a 15.8 percent drop in operating profit, the company said.
“The decline is due to reductions and the big promotions that the company offered its customers, which has led to an 18 percent rise in the number of customers,” it said.
The drop in earnings was steeper than the average 11.7 percent forecast by four analysts in a Reuters survey last month. Analysts expected profits would range between SR2.25 billion and SR3.99 billion.
“Saudi Telecom is facing a decline in margins as Mobily strengthens its presence in the mobile market which forces it to lower communication costs,” said Ibrahim Al-Alwan, deputy chief executive of KSB Capital Group, whose profit forecast of SR2.65 billion was the closest to the outcome.
The continuous decline in net profit signals the need for Saudi Telecom, the only one of the four largest Arab telecom firms that has not made acquisitions, to move into foreign markets to boost revenues, Alwan said.
“Saudi Telecom must be more aggressive in its attempt to break into foreign markets, which can greatly help revenue growth through cross-selling of communication services,” Alwan said. Saudi Telecom could borrow up to $15 billion in debt to fund one or two large acquisitions either in Africa or Asia in its bid to enter foreign markets, a senior STC official said earlier this month.
A Saudi Telecom board member said yesterday the company needed to reduce costs and increase revenues by introducing new services in the domestic market and by venturing into foreign markets.
Earnings per share in the quarter of SR1.36 compared with SR1.71 in the first quarter of 2006, STC said.
STC said it would give shareholders a SR2.5 billion dividend for the first quarter, unchanged from the year-earlier period.
